We recently published a list of 7 Best ASX Stocks To Invest In Right Now. In this article, we are going to take a look at where Tamboran Resources (NYSE:TBN) stands against other ASX stocks to invest in right now.
Overview of the Australian Economy
According to a report by the Australian Bureau of Statistics, Australia’s economy is growing at a sluggish pace as GDP for the June quarter increased by just 0.2%, bringing the annual growth rate to 1% for the year to June however, Australia continues to narrowly avoid a recession. According to Katherine Keenan, head of national accounts at the Australian Bureau of Statistics, the annual financial year economic growth was the lowest since 1991-92 excluding the Covid-19 pandemic period.
For the year to July, the Consumer Price Index (CPI) fell to 3.5%, from 3.8% in June which signals that inflation may be starting to ease. This reduction was largely attributed to energy rebates introduced by state and federal governments. In response, three of Australia’s big four banks have slashed interest rates on term deposits by as much as 80 basis points, signaling expectations of a significant rate cut in 2025. However, experts warn that inflation for the year to June remains “stubbornly high.” The Reserve Bank of Australia (RBA) has an inflation target of 2%-3%, and economists predict that rate cuts will likely not occur before 2025 due to inflationary pressures. Jim Chalmers, Treasurer of Australia acknowledged the economic stagnation and attributed the slow growth to a combination of global economic uncertainty, and the burden of higher interest rates.
Despite the economic challenges, wages in Australia continue to rise steadily, with a 4.1% increase for the year to June, slightly lower than the 4.2% growth recorded at the end of 2023. Private sector wages grew by 0.7% during the June quarter, down from 0.9% in the March quarter, while public sector wages saw a 0.9% increase, up from 0.6%.
Australian Equities Amid Inflation and Rising Rates
According to Schroders’ head of Australian equity, Martin Conlon, Investor sentiment toward investing in Australia reflects a cautious yet strategically optimistic approach, over the past decade, Australian equities, particularly in technology, growth, and green energy sectors, have enjoyed significant growth driven by speculative investment and aggressive financial leverage due to low borrowing costs. However, with the recent return of inflation and the necessity of higher interest rates, this sentiment has tempered.
However, real economy sectors such as resources, energy, and materials have gained traction due to more favorable investment opportunities. The mining sector, which represents a significant portion of Australia’s economic output, remains particularly attractive. Australia’s iron ore exports have long been a cornerstone of the economy, and global demand remains robust. Some of the largest mining companies in Australia maintain competitive advantages due to their low-cost operations, especially in iron ore production, which continues to generate strong cash flows even as global commodity demand fluctuates. Furthermore, Australia’s reserves of critical minerals like lithium and rare earths, essential for renewable energy technologies, position the country at the forefront of this transformation.
Investors are now prioritizing sectors with reasonable valuation levels and sound fundamentals, particularly those with exposure to the real economy. Resource stocks stand to benefit from global deglobalization trends as Western economies reduce their reliance on Chinese manufacturing. This shift is expected to result in higher costs for goods, further supporting the case for investing in resource-heavy sectors.
Despite the economic slowdown and inflationary pressures, the country continues to narrowly avoid recession. However, Australia’s unique position as a major commodities exporter and its exposure to the energy transition present compelling opportunities.
Our Methodology
For this article, we used the Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 20 largest companies in Australia by market cap. From that list, we narrowed our choices to the 7 stocks with the most hedge fund holders, as of Q2 of 2024. The list is sorted in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Industry workers in a natural gas distribution facility, monitoring the location of pipelines.
Tamboran Resources (NYSE:TBN) is a natural gas company operating in Australia and the broader Asia-Pacific region. As the largest landholder and operator in the Beetaloo Sub-basin, the company controls around 1.9 million acres in the Beetaloo/McArthur basin, located 500 km southeast of Darwin which spans 28,000 square kilometers and is estimated to have 500 trillion cubic feet of gas. The company plays a key role in delivering cleaner energy solutions and has extensive experience in assessing unconventional gas fields.
In July, Tamboran Resources (NYSE:TBN) secured an Interim Agreement for a 420-acre site at the Middle Arm Sustainable Development Precinct. This agreement gives the company exclusive rights to the Wirraway North site until the end of 2027, with the option to extend twice for one year. Moreover, in April 2024, Tamboran Resources (NYSE:TBN), along with its Beetaloo Joint Venture (BJV) partner, signed a major gas supply agreement with the Northern Territory Government to supply 40 terajoules (TJ) of gas per day from their Shenandoah South Pilot Project. The supply will last for an initial nine years, starting in the first half of 2026, delivering a total of 131.4 petajoules (PJ) of gas. Tamboran Resources (NYSE:TBN) share amounts to around 62.4 PJ. The Northern Territory Government also has the option to extend the contract for an additional six-and-a-half years until mid-2041.
The gas will be transported via the Amadeus Gas Pipeline on a take-or-pay basis. This means that the Northern Territory Government will either take the gas or pay for it and the price of gas will follow the Consumer Price Index (CPI), meaning it will adjust with inflation. If the Northern Territory Government chooses to extend the contract, they will receive the gas at a slightly discounted rate.
The binding gas supply agreement with the Northern Territory Government ensures a steady revenue stream for the company, starting in 2026, with an option for extension until 2041 which offers robust growth and long-term shareholder returns. As of the second quarter, Tamboran Resources’ (NYSE:TBN) stock is held by 4hedge funds, with a total stake valued at $95.04 million.
Overall TBN ranks 4th on our list of best ASX stocks to invest in right now. While we acknowledge the potential of TBN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TBN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
